Franchising in UK

Unlike in the USA, Australia or Canada, there is no franchise
specific legislation in the United Kingdom. However, franchise
agreements in the UK, are subject to the general common law and
legislation. As a result UK franchise agreements are often quite
lengthy, because they are drafted to cater for all
eventualities.

The absence of franchise specific legislation provides the
British Franchise Association (“BFA”) with an important role in the
regulation of franchising. Membership is voluntary and subject to
annual renewal. The BFA requires all its members, (franchisors,
affiliates and consultants), to adhere to a Code of Ethics
(“Code”). The Code requires a franchisor to have successfully
operated a business concept, with success for a reasonable period
of time, to be the owner or have the legal right to use the trade
name, trademarks and to offer assistance to the franchisee
throughout the relationship. It also requires the franchisor to
provide advance disclosure of certain information and both parties
to exercise fairness in their dealing with one another. This is so,
despite there being no general obligation in the UK to exercise
good faith in contractual relations.

Technically franchisors only have to comply with the Code if
they are members of the BFA. In a recent case, the High Court held
that compliance with the Code is a good indicator of what is
regarded as good practice in franchising.

Competition law regulates Franchise Agreements because they have
the potential to affect competition if they contain territorial
restrictions, pricing obligations or non-compete requirements as
most Franchise Agreements do.

Most franchise agreements contain exemption clauses, which seek
to limit or exclude the franchisor’s liability for pre contractual
statements or other matters. UCTA applies to any clause where a
franchisor seeks to limit its liability in any way. Franchise
agreements are likely to be treated as standard form documents
therefore any exclusion clauses will only be valid in so far as
they are fair and reasonable.

The franchisor’s trade name and trademarks, confidential
information and know-how are essential elements of what is provided
to the franchisee. Trademarks are registrable in the UK under the
Trade Marks Act 1994. Copyright does not require registration – it
simply arises!

The Data Protection Act (“DPA”) governs the processing of
personal information held on living and identifiable individuals.
It applies to the ‘processing’ of ‘personal data’. A breach of data
protection laws can lead to criminal as well as civil liability.
All the obligations under the DPA fall upon the ‘data controller’.
In the franchising context, franchisors and franchisees are both
usually data controllers, although franchisees are sometimes data
processors rather than data controllers. Further, there are
restrictions on “exporting” personal data outside the European
Union.

The Trading Schemes Act (“TSA”) was introduced to regulate
pyramid selling schemes but was badly drafted and as a result
regulates franchising unless the franchisor and all franchisees are
VAT registered, or unless the franchise network is “a single tier”
network – in other words all franchisees at the same level.
Generally, franchisors try hard to avoid having to comply with the
“tough” requirements of the TSA!

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